By Andrea Hopkins
TORONTO, Feb 28 (Reuters) - The Canadian dollar hit a one-week high against its U.S. counterpart and ended stronger on Tuesday as a looming injection of cheap cash by the European Central Bank boosted riskier assets and kept the U.S. dollar on weaker footing.
Risk appetite reigned as investors focused on the ECB's Longer Term Refinancing Operation (LTRO), an offer of cheap money on Wednesday aimed at providing support for companies that have been starved of investment funds.
The ECB's first operation in December helped fuel a rally in riskier assets by encouraging banks to borrow from the central bank and purchase higher-yielding European sovereign bonds. This helped bring the yields of debt-burdened countries such as Italy and Spain down significantly and allayed contagion fears stemming from Greece.
"There is a lot of anticipation built up about the LTRO tomorrow and how exactly it will fall and how that should be interpreted," said Camilla Sutton, chief currency strategist at Scotia Capital.
"We haven't had a substantial move (in the Canadian dollar) since this morning ... but equities are ending the day in positive territory and the U.S. dollar is broadly weaker."
The Canadian dollar ended the day at C$0.9954 versus the U.S. dollar, or $1.0046, up from Monday's North American session finish at C$0.9992 versus the U.S. dollar, or $1.0008.
Early in the session the currency reached C$0.9941, or $1.0059, its strongest level since Feb. 21.
Markets expect European banks to borrow about 500 billion euros ($670 billion) of funds to be offered by the ECB at Wednesday's long term refinancing operation, although forecasts range from 200 billion to 750 billion euros.
Risk-on sentiment also boosted global stocks as investors focused on a positive U.S. report on consumer confidence and ignored gloomier data on U.S. durable goods and home prices.
Consumer confidence in the world's largest economy rose to a one-year high in February, according to a survey that took into account optimism about the labor market versus concerns over rising gasoline prices. Consumer confidence is key to the U.S. economy, as consumer spending makes up more than two-thirds of economic activity.
A fall in oil prices following a recent surge also supported broader risk appetite, even for commodity-driven currencies like Canada's, as investors fear elevated oil poses a threat to the global economy.
"Beyond a certain point higher oil prices don't cause the Canadian dollar to appreciate to the same degree," said David Tulk, chief Canada macro strategist at TD Securities.
Canadian bond prices were mixed. The two-year bond
was down 2 Canadian cents to yield 1.074 percent. The 10-year bond rose 20 Canadian cents to yield 1.983 percent.
(Additional reporting by Claire Sibonney; Editing by Jeffrey Hodgson)
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